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CMS Releases Financial Specifications for AHEAD Model

Faridat Animashaun
February 22, 2024

The Centers for Medicare & Medicaid Services (CMS) has released the financial methodology and operational payment features of Medicare fee-for-service (FFS) Hospital Global Budgets (HGBs) under the States Advancing All-Payer Health Equity Approaches and Development Model (AHEAD). The agency also released a fact sheet explaining how the model interacts with other CMS payment models.

AHEAD, introduced in September 2023, is a voluntary, state-based alternative payment and service delivery model designed to curb health care cost growth, improve population health, and advance health equity by reducing disparities in health outcomes.

Hospital Global Budget Construction

CMS requires states participating in AHEAD to offer HGBs to eligible hospitals via their state Medicaid agencies. HGBs refer to a predetermined, fixed amount of revenue a hospital will receive to treat a specific patient population or program. Medicare HGBs are calculated based on a review of Medicare payments in previous years, and updates are calculated to reflect inflation and changes in populations served and services provided.

States with existing statewide hospital rate setting or hospital budget setting authority and prior experience with population-based payments or global budgets may develop their own HGB methodology, including for Medicare FFS, subject to CMS approval. States without existing authorities will follow the CMS-designed HGB methodology.

To construct Medicare FFS HGBs for participating hospitals, CMS will first calculate a hospital’s global budget baseline by combining its historical revenue from Inpatient Prospective Payment System and Outpatient Prospective Payment System payments from the three most recent years preceding the first in which the hospital joins the model for which sufficiently complete claims data are available.

  • CMS will weight historical revenue, with the most recent years weighted more heavily (i.e., Base Year 1: 10 percent; Base Year 2: 30 percent; and Base Year 3: 60 percent).
  • Professional services rendered in a hospital setting that are not included in the HGB will continue to be paid on an FFS basis.
  • Medicare payments to hospitals currently paid outside the FFS framework (i.e, bad debt and direct graduate medical education) will continue to be paid as they are currently.

Payment Adjustments

CMS then will apply annual trend updates to reflect changes in inflation, demographic changes, market shifts, service line changes, and volume changes. For disproportionate share hospital uncompensated care and indirect medical education payments, Base Year 3 will serve as the floor to avoid penalizing participating hospitals for reducing potentially avoidable utilization.

CMS will also apply AHEAD-specific adjustments, including the Transformation Incentive Adjustment and the Social Risk Adjustment.

CMS will apply performance-based adjustments to HGBs for each performance year based on financial and quality performance standards. Performance-based adjustments to HGBs will include adjustments for performance on CMS national quality programs, Hospital Health Equity Improvement Bonus, effectiveness on Potentially Avoidable Utilization targets, and performance on Total Cost of Care targets.

After adjusting each hospital’s global budget, each hospital will receive a prospective, biweekly payment for Medicare FFS services in lieu of traditional FFS claims or cost-based reimbursement. Hospitals will continue to submit Medicare FFS inpatient and outpatient claims and Medicare Hospital Cost Reports to CMS. However, they will not be paid via the standard Medicare FFS system for services covered under the HGBs.

CMS stated that it will continue to iterate the HGB methodology, based on feedback and additional analyses.

Overlap with other Center for Medicare and Medicaid Innovation Models

The following models and programs can concurrently operate within an AHEAD state or substate region, with certain conditions and restrictions:

  • ACO Realizing Equity, Access, and Community Health.
  • Guiding an Improved Dementia Experience.
  • Primary Care First.
  • Innovation in Behavioral Health.
  • Medicare Shared Savings Program.

The following models cannot concurrently operate within the participating AHEAD state or sub-state region:

  • Making Care Primary.
  • Transforming Maternal Health.

States interested in participating in the model are required to submit their applications by Monday, March 18, 2024 (for Cohorts 1 and 2); and Monday, Aug. 12, 2024 (for Cohort 3). CMS plans to select up to eight states to participate.

Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.

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